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Insights
Excitement Builds Around Incentives

Customer Voice
Email, Not Phone Home

Incentives Create Clear Sailing

Supplier Voice
Incentives Build Relationship Outsourcing

ERP Ties All Systems Together

Analyst Voice
Incentives: Don't Sign an Outsourcing Contract Without Them

Legal Voice
Including Incentives in an Outsourcing Contract

Special Feature
Insurer Discovers It's Good Policy to Outsource

Insuring A Good Result With Outsourcing

BPO Voice
Let Our Sales Force Be With You

Government Perspective
Performance-Based Contracts

NASA Launches Outsourcing Initiative

Better Care For A State Hospital

Out Of This World IT Support

Academic Voice
Getting Ready For Tomorrow

Did you ever buy something, then get it home only to realize it's a lot more complicated than you thought. That's what happened to Lincoln Life Insurance Company in Hartford, Connecticut. It purchased the administration of insurance policies from Cigna and Aetna. Each company had its own policy administration computer system. Lincoln Life had its own system. Suddenly, there were three computer systems required to do the same job. And none were compatible.

One of the best ways to institute uniformity is to outsource that process. The outsourcing provider can then amalgamate the differing systems into its own, providing the desired standardization.

Since the systems in question were older product types, Lincoln didn't want to have to worry about finding staffers who were proficient in these systems. IT professionals gravitate toward the newest programs, so it would become increasingly difficult and expensive to find someone capable of babysitting the older programs. Outsourcing would transfer the responsibility of finding knowledgeable personnel to the provider.In addition, these 467,000 policies were issued during the 1980's when life insurers concentrated on term and whole life insurance policies. Today there are many new and more exotic types of insurance available. Lincoln Life wanted to concentrate its sales efforts on these newer policy types and the high end market, which were becoming its core business.

A Tool For Future Growth

In addition, outsourcing would allow the insurance company to focus on future growth by establishing a strategic partnership with its outsourcing provider. Lincoln felt it could lay the groundwork for future acquisitions by having the outsourcer develop an integrated system for the Aetna and Cigna systems that it could use later with other acquisitions.

Lincoln Life began the search for an outsourcing provider in October 1998. By Christmas the insurer had made little progress. So it hired Everest Group, Inc. to help it select a provider.

Scott Bushnell, a senior consultant at Everest, arrived in Hartford in January 1999. "We scrapped everything they had done and started from scratch," he says. The Everest team needed only 30 days to prepare a Request For Proposal (RFP).

Bushnell says the most difficult task was determining appropriate service level agreements (SLAs). The Everest team assembled Lincoln Life managers to help them write service descriptions. Half of the insurance team came from the IT world, the other half were experts in business policies.

Writing A Detailed RFP

Everest wrote the RFP by describing as complete a picture of the business being outsourced as possible. By providing a high level of detail early in the RFP cycle, it is possible to prevent bidders from making assumptions about deliverables, which would increase the cost of services to Lincoln over the life of the contract. The RFP includes the final contractual language and gives Lincoln the flexibility to easily modify the contractual relationship at any future time without having to completely re-enter the contract negotiations.

Before the RFP was completed, Everest and Lincoln Life prepared a list of 15 possible providers. They wanted a company with a proven track record in Business Process Outsourcing. In addition, the provider had to specialize in insurance policyholder service outsourcing. They had to be willing to provide service guarantees and provide cost savings. Finally, Lincoln Life wanted an outsourcing provider whose corporate culture mixed well with its own.

Lincoln narrowed the final list, actually sending the RFP to only three companies. EDS responded with the best terms and the highest quality of services. Everest subjected EDS' proposal to an extensive and objective supplier proposal analysis.

Lincoln Life requested a time phased transition of the three systems. The implementation began on April 1, 1999.

Lessons from the Outsourcing Primer:

• Outsourcing can lay important groundwork to make future acquisitions easier.
• If a company acquires another company whose work is dependent on older computer systems, outsourcing eliminates the need to retain skilled personnel proficient in an older, less popular computer system.
• Outsourcing creates standardization.
• Hire a consultant if you are outsourcing for the first time or if you are faced with deadlines, which your in-house staff can not support alone.

Publish Date: July 2000

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Copyright © 2000 - Everest Partners, L.P.

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